Social Change Blog

Social Impact Bonds…Financing Government since 2013!

What? A recent article by James Anderson explained an innovative funding mechanism for social services provided by the government. This approach has been recently adopted in New York City where investment bank Goldman Sachs has financed services provided to young inmates. These financial instruments are called social impact bonds and they are only paid by the government if the program provider or financer meets program targets.

So what? This method is a radical change in the way government services are financed because there are no upfront costs incurred by government. Additionally, it promotes performance over entrenched interests and ineffective programs. This is a prime example of increasing market competition advocated by Goldsmith. This type of competition as Goldsmith eludes has improved the delivery of social services as well as boosts accountability for taxpayers.

Now what? Social impact bonds provide an opportunity for individuals at the grassroots level to be involved in the innovation process. For example, funders are encouraging governments and citizens to work to together to develop novel solutions to their local problems. These solutions can then be proposed to potential funders. These funders could be investment banks, foundations, corporation or non-profits. By applying private sectors expertise in meeting targets and outcomes, social impact bonds have the potential to change the way social services and programs operate in the future